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Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of: )
)
Implementation of the Satellite Home ) CS Docket No. 99-363
Viewer Improvement Act of 1999 )
)
Retransmission Consent Issues: )
Good Faith Negotiation and Exclusivity )
FIRST REPORT AND ORDER
Adopted: March 14, 2000 Released: March 16, 2000
By the Commission:
Table of Contents
Paragraph Nos.
I. INTRODUCTION 1
II. BACKGROUND 3
III. SUMMARY OF DECISION 6
IV. GOOD FAITH NEGOTIATION REQUIREMENT 11
A. Congressional Intent in Amending Section 325
of the Communications Act 11
B. Mutual Good Faith Negotiation Requirement 25
C. Definition of Good Faith 27
D. Carriage While a Complaint is Pending 59
E. Existing and Subsequent Retransmission Consent Agreements 62
V. EXCLUSIVE RETRANSMISSION CONSENT AGREEMENTS 65
VI. RETRANSMISSION CONSENT AND EXCLUSIVITY COMPLAINT
PROCEDURES 73
A. Voluntary Mediation 73
B. Commission Procedures 75
C. Discovery 78
D. Remedies 80
E. Expedited Resolution 83
F. Burden of Proof 86
G. Sunset of Rules 90
VII. ADMINISTRATIVE MATTERS 95
VIII. ORDERING CLAUSES 98
APPENDIX A
APPENDIX B
APPENDIX C
I. INTRODUCTION
1. In this First Report and Order ("Order"), we adopt rules implementing certain
aspects of the Satellite Home Viewer Improvement Act of 1999 ("SHVIA"). SHVIA authorizes
satellite carriers to add more local and national broadcast programming to their offerings, and to
make that programming available to subscribers who previously have been prohibited from
receiving broadcast fare via satellite under compulsory licensing provisions of the copyright law.
The legislation generally seeks to place satellite carriers on an equal footing with local cable
operators when it comes to the availability of broadcast programming, and thus give consumers
more and better choices in selecting a multichannel video program distributor ("MVPD").
2. Among other things, Section 325(b)(3)(C) of the Communications Act requires
satellite carriers to obtain retransmission consent for the local broadcast signals they carry, requires
broadcasters, until 2006, to negotiate in good faith with satellite carriers and other MVPDs with
respect to their retransmission of the broadcasters' signals, and prohibits broadcasters from entering
into exclusive retransmission consent agreements. Section 325(b)(3)(C) required the Commission
to commence a rulemaking within 45 days of the enactment of SHVIA and to complete all actions
necessary to prescribe regulations within 1 year after such date of enactment. The Commission
issued a Notice of Proposed Rulemaking ("Notice") on December 22, 1999. The Commission
received numerous comments and reply comments to the Notice. We conclude the good faith
negotiation and exclusivity portion of this rulemaking well ahead of our statutory deadlines for
doing so because of the importance of implementing these provisions to MVPD competition and
the growth of satellite service.
II. BACKGROUND
3. In 1988, Congress passed the Satellite Home Viewer Act ("1988 SHVA") in order
to provide people in unserved areas of the country with access to broadcast programming via
satellite. The 1988 SHVA enabled satellite carriers to provide broadcast programming to those
satellite subscribers who were unable to obtain broadcast network programming over-the-air. As a
general matter, however, the 1988 SHVA did not permit satellite carriers to retransmit local
broadcast television signals directly to consumers.
4. The Cable Television Consumer Protection and Competition Act of 1992 ("1992
Cable Act") amended the Communications Act, inter alia, to include Section 325, which provides
television stations with certain carriage rights on local market cable television systems. Within
local market areas, commercial television stations may elect cable carriage under either the
retransmission consent or mandatory carriage requirements. Section 325 as initially enacted
contained no standards pursuant to which broadcasters were required to negotiate with MVPDs.
The Commission established rules related to the retransmission/mandatory carriage election cycle,
but did not adopt rules governing the negotiation process of retransmission consent.
5. SHVIA revises the 1988 SHVA and reflects changes not only involving the
satellite industry and subscribers, but television broadcast stations and terrestrial MVPDs. SHVIA
adopts changes in several areas, including retransmission consent, must-carry, and retransmission
of local broadcast signals. In particular, SHVIA addresses several limitations previously placed on
satellite carriers, including the issue of satellite carrier retransmission of local broadcast
programming.
III. SUMMARY OF DECISION
6. The Order determines that the statute does not intend to subject retransmission
consent negotiation to detailed substantive oversight by the Commission. Instead, the order
concludes that Congress intended that the Commission follow established precedent, particularly
in the field of labor law, in implementing the good faith retransmission consent negotiation
requirement. Consistent with this conclusion, the Order adopts a two-part test for good faith. The
first part of the test consists of a brief, objective list of negotiation standards. First, a broadcaster
may not refuse to negotiate with an MVPD regarding retransmission consent. Second, a
broadcaster must appoint a negotiating representative with authority to bargain on retransmission
consent issues. Third, a broadcaster must agree to meet at reasonable times and locations and
cannot act in a manner that would unduly delay the course of negotiations. Fourth, a broadcaster
may not put forth a single, unilateral proposal. Fifth, a broadcaster, in responding to an offer
proposed by an MVPD, must provide considered reasons for rejecting any aspects of the MVPD's
offer. Sixth, a broadcaster is prohibited from entering into an agreement with any party conditioned
upon denying retransmission consent to any MVPD. Finally, a broadcaster must agree to execute
a written retransmission consent agreement that sets forth the full agreement between the
broadcaster and the MVPD.
7. The second part of the good faith test is based on a totality of the circumstances
standard. Under this standard, an MVPD may present facts to the Commission which, even though
they do not allege a violation of the specific standards enumerated above, given the totality of the
circumstances constitute a failure to negotiate in good faith.
8. The Order concludes that it is not practicably possible to discern objective
competitive marketplace factors that broadcasters must discover and base any negotiations and
offers on, and that it is the retransmission consent negotiations that take place that are the market
through which the relative benefits and costs to the broadcaster and MVPD are established. The
Order provides examples of negotiation proposals that presumptively are consistent and
inconsistent with "competitive marketplace considerations." At the same time, the Order provides
that it is implicit in Section 325(b)(3)(C) that any effort to further anti-competitive ends through the
negotiation process would not meet the good faith negotiation requirement. Considerations that are
designed to frustrate the functioning of a competitive market are not "competitive marketplace
considerations." Conduct that is violative of national policies favoring competition -- that is, for
example, intended to gain or sustain a monopoly, is an agreement not to compete or to fix prices,
or involves the exercise of market power in one market in order to foreclose competitors from
participation in another market -- is not within the competitive marketplace considerations standard
included in the statute. The Commission's rules regarding the good faith negotiation requirement
sunset on January 1, 2006.
9. As for the prohibition on exclusivity, the Order interprets the phrase "engaging in"
broadly. Thus, the Order would prohibit not only entering into exclusive retransmission consent
agreements, but also negotiating exclusive agreements that would take effect after the sunset of the
prohibition. The Commission's rules regarding exclusive retransmission consent agreements sunset
on January 1, 2006.
10. An MVPD believing itself to be aggrieved under Section 325(b)(3)(C) may file a
complaint with the Commission. The Order provides that the procedural provisions of Section 76.7
will govern good faith and exclusivity complaints. The Order directs Commission staff to expedite
resolution of good faith and exclusivity complaints. The Order provides that the burden of proof
with regard to such complaints is on the MVPD complainant.
IV. GOOD FAITH NEGOTIATION REQUIREMENT
A. Congressional Intent in Amending Section 325 of the Communications Act
11. In SHVIA, Congress amended Section 325(b) of the Communications Act,
requiring the Commission to revise its regulations so that they shall:
. . . until January 1, 2006, prohibit a television broadcast station that
provides retransmission consent from . . . failing to negotiate in good faith,
and it shall not be a failure to negotiate in good faith if the television
broadcast station enters into retransmission consent agreements containing
different terms and conditions, including price terms, with different
multichannel video programming distributors if such different terms and
conditions are based on competitive marketplace considerations.
The Joint Explanatory Statement of the Committee of Conference ("Conference Report") does not
explain or clarify the statutory language, merely stating that:
The regulations would, until January 1, 2006, prohibit a television
broadcast station from . . . refusing to negotiate in good faith regarding
retransmission consent agreements. A television station may generally
offer different retransmission consent terms or conditions, including price
terms, to different distributors. The [Commission] may determine that
such different terms represent a failure to negotiate in good faith only if
they are not based on competitive marketplace considerations.
The Notice sought comment on the correct interpretation of the good faith negotiation requirement
of Section 325(b)(3)(C).
12. At the outset of our discussion, we note that Section 325(b)(2)(E) of the
Communications Act grants satellite carriers a six-month period during which they may retransmit
the signals of local broadcasters without a broadcaster's express retransmission consent. As
discussed in further detail below, Section 325 also requires strict enforcement of, and severe
penalties for, satellite carrier retransmission of local broadcast signals without consent after this
six-month period expires. We have adopted these rules before the end of the six-month period
provided by Section 325(b)(2)(E) so that MVPDs, particularly satellite carriers, and broadcasters
understand their rights and obligations under Section 325(b)(3)(C) before that period expires.
These rules will provide a framework under which broadcasters and satellite carriers can achieve
retransmission consent before the expiration of the six-month period set forth in Section
325(b)(2)(E) so as to avoid the highly undesirable interruption of local broadcast signals that
satellite carriers have begun to provide to their subscribers in many cities across the nation. On an
ongoing basis, we intend these rules to govern the negotiation of retransmission consent between
broadcasters and all MVPDs.
13. The statute does not appear to contemplate an intrusive role for the Commission
with regard to retransmission consent. Section 325(b)(3)(C) instructs the Commission to "revise
the regulations governing the exercise by television broadcast stations of the right to grant
retransmission consent under this subsection. . . ." The fact that Congress instructed the
Commission to "revise" its existing retransmission consent regulations, coupled with the
determinedly brief discussion of Section 325(b)(3)(C) in the Conference Report, leads us to
conclude that, in addition to the guidance that can be gleaned from SHVIA, we should also look for
guidance in the legislative history of the retransmission consent provisions of the 1992 Cable Act.
When Congress first applied retransmission consent to MVPDs in 1992, it stated that "it is the
Committee's intention to establish a marketplace for the disposition of the rights to retransmit
broadcast signals; it is not the Committee's intention in this bill to dictate the outcome of the
ensuing marketplace negotiations."
14. Based on this language, the Commission concluded in the Broadcast Signal
Carriage Order that Congress did not intend that the Commission should intrude in the negotiation
of retransmission consent. We do not interpret the good faith requirement of SHVIA to alter this
settled course and require that the Commission assume a substantive role in the negotiation of the
terms and conditions of retransmission consent. We note that Congress considered and explicitly
rejected a comprehensive regime that required the Commission to:
prohibit television broadcast stations that provide retransmission consent
from engaging in discriminatory practices, understandings, arrangements,
and activities, including exclusive contracts for carriage, that prevent a
multichannel video programming distributor from obtaining
retransmission consent from such stations.
Where Congress expressly considers and rejects such an approach, the rules of statutory
construction do not favor interpreting a subsequent statutory provision to require the rejected
alternative. Given the express congressional rejection of this anti-discrimination provision, we
will not adopt rules to recreate this provision by regulation.
15. In support of the position that intrusive Commission action is unnecessary to
implement the good faith negotiation requirement, commenters point to the fact that thousands of
retransmission consent agreements have been successfully concluded between local broadcasters
and MVPDs since adoption of the 1992 Cable Act. In addition, commenters note that within days
after enactment of SHVIA, DIRECTV and EchoStar announced that they had entered into
retransmission consent agreements with the owned-and-operated affiliates of several of the major
television networks. As a result, these commenters argue that it would be wholly inappropriate to
impose "shotgun wedding" style regulations on a marketplace that is already functioning.
DIRECTV, however, argues that the existence of these agreements does not ensure that agreements
that have yet to be completed will progress as smoothly.
16. One commenter maintains that the purpose of the good faith requirement is merely
to bring the parties to the bargaining table, stating that "Congress signaled its desire only that
broadcasters, having once made the decision to provide retransmission consent, should be required
to negotiate with all interested MVPDs and not engage in an outright refusal to deal." Several
broadcast commenters assert that Congress merely intended the Commission to revise its existing
regulations to account for retransmission consent agreements between broadcasters and satellite
carriers that now qualify for compulsory copyright license to provide local television stations to
satellite subscribers.
17. ALTV advises the Commission to focus on Congress' overarching purpose in
enacting Section 325 in the 1992 Cable Act assuring broadcasters the opportunity to secure
compensation for the value of the retransmission of their signals by MVPDs. Conversely, other
commenters assert that Congress intended the Commission to begin with the premise that television
broadcast programming is an indispensable component of any MVPD's service package and that
alternative MVPDs cannot compete effectively with incumbent cable operators if they are denied
full and fair access to that programming in local markets.
18. We find instructive the legislative history of a previous version of SHVIA that was
considered, but not enacted, by Congress. During the consideration of the House version of SHVIA,
Representative Tauzin explained to Representative Dingell that the House bill, which included a
detailed, anti-discrimination provision, would permit:
[A] broadcast station . . . for example, [to] negotiate a cash payment from
one video distributor for retransmission consent and reach an agreement
with other distributors operating in the same market that contains different
prices or other terms . . . [Indeed], as long as a station does not refuse to
deal with any particular distributor, a station's insistence on different
terms and conditions in retransmission agreements based on marketplace
considerations is not intended to be prohibited by this bill . . . if a station
negotiates in good faith with a distributor, the failure to reach an
agreement with that distributor would not constitute a discriminatory act
that is intended to be barred by this section.
In discussing this same previous version of SHVIA, Representative Berman echoed a similar
sentiment stating "[W]hile it is important that MVPDs have the opportunity to negotiate for
retransmission consent, we do not in this bill subject the prices or other terms and conditions of
nonexclusive retransmission consent agreements to [Commission] scrutiny." Again, these
statements reflect consideration of the more onerous House version of SHVIA and its anti-
discrimination requirement. We find it difficult to reconcile commenters arguments that SHVIA as
enacted contains a broad grant of Commission authority to analyze and prohibit the substantive
terms of retransmission consent with these statements.
19. Commenters argue that the statutory imposition of a good faith negotiation
requirement is in derogation of the long-standing common law right to contract and therefore the
duty, though statutorily imposed, must be narrowly construed. Commenters assert that even a
statutory duty to negotiate in good faith does not require parties to do anything contrary to their
own self-interest or make any particular concessions. Accordingly, argues Disney, the
Commission is not empowered to become involved in the substance of retransmission consent
negotiations.
20. We agree with those commenters that assert that Section 325(b)(3)(C) should be
narrowly construed. As commenters indicate, congressional language in derogation of the common
law should be interpreted to implement the express directives of Congress and no further. The
United States Supreme Court has reiterated this rule of statutory construction on several occasions,
holding that [s]tatutes which invade the common law . . . are to be read with a presumption favoring
the retention of long-established and familiar principles, except when a statutory purpose to the
contrary is evident." In addition, the Court has stated that, when a statutory provision does
derogate from the common law, it "must be strictly construed for no statute is to be construed as
altering the common law, farther [sic] than its words import."
21. Commenters state that, in other contexts, the good faith standard has a well
understood meaning that Congress must be presumed to have intended, particularly, where, as here,
nothing in the statute or the legislative history suggests that Congress intended the Commission to
develop its own definition of good faith. These commenters argue that SHVIA cannot be read to
grant the Commission new, wholesale authority to define good faith or engage in a detailed case-
by-case review of the retransmission terms offered to one MVPD as compared to another. These
commenters assert that the most appropriate statutory example to follow is that of the good faith
requirement of Section 8(d) of the Taft-Hartley Act.
22. Given the dearth of guidance in the statute and legislative history, we believe that
Congress signaled that the good faith negotiation requirement adopted in Section 325(b)(3)(C) was
sufficiently well understood that further explication was unnecessary. In such situations, we
believe that Congress intends the Commission look to analogous statutory standards from which to
draw guidance. While commenters offer various sources on which to rely, we agree with those
commenters suggesting that the good faith bargaining requirement of Section 8(d) of the Taft-
Hartley Act is the most appropriate source of guidance. Section 8(d) of the Taft-Hartley Act details
the collective bargaining duty of both employers and labor representatives, providing that:
To bargain collectively is the performance of the mutual obligation of the
employer and the representative of the employees to meet at reasonable
times and confer in good faith with respect to wages, hours, and other
terms and conditions of employment . . . but such obligation does not
compel either party to agree to a proposal or require the making of a
concession.
There are significant parallels between the congressional policy goal of good faith negotiation
underlying both Section 325(b)(3)(C) and Section 8(d) of the Taft-Hartley Act. In this regard, there
is substantial National Labor Relations Board ("NLRB") precedent that the good faith negotiation
requirement applies solely to the process of the negotiations and does not permit the NLRB to
require agreement or impose terms or conditions on collective bargaining agreements. The
Supreme Court has made this determination with force and clarity, stating that:
It was recognized from the beginning that agreement might be impossible,
and it was never intended that the Government would in such cases step in,
become a party to the negotiations and impose its own views of a desirable
settlement.
23. Congress clearly did not intend the Commission to sit in judgement of the terms of
every retransmission consent agreement executed between a broadcaster and an MVPD. Even if
the Commission had the resources to accomplish such a delegation, we can divine no intent in
either the statute or its legislative history to achieve such a result. As commenters indicated, when
Congress intends the Commission to directly insert itself in the marketplace for video
programming, it does so with specificity. Despite the arguments of the satellite industry and other
MVPDs, we find nothing supporting a construction of Section 325(b)(3)(C) that would grant the
Commission authority to impose a complex and intrusive regulatory regime similar to the program
access provisions or the interconnection requirements of Section 251 of the Communications Act.
While the Commission generally will not intrude into the substance of particular retransmission
consent negotiations and agreements, we note that Section 325(b)(3)(C) sanctions only those
retransmission consent agreements containing different terms and conditions, including price terms,
with different MVPDs if such different terms and conditions are based upon competitive
marketplace considerations.
24. Having reached this conclusion, we do not interpret Section 325(b)(3)(C) as
"largely hortatory" as suggested by some commenters. As we stated in the Notice, "Congress has
signaled its intention to impose some heightened duty of negotiation on broadcasters in the
retransmission consent process." In other words, Congress intended that the parties to
retransmission consent have negotiation obligations greater than those under common law. Absent
fraudulent intent, common law imposes no obligation on parties to negotiate in good faith prior to
the formation of a contract. We believe that, by imposing the good faith obligation, Congress
intended that the Commission develop and enforce a process that ensures that broadcasters and
MVPDs meet to negotiate retransmission consent and that such negotiations are conducted in an
atmosphere of honesty, purpose and clarity of process.
B. Mutual Good Faith Negotiation Requirement
25. As a preliminary matter, we must determine to whom the "good faith" negotiation
obligation applies. The Notice requested comment on whether the duty of good faith negotiation
applies equally to the broadcaster and MVPD negotiating a retransmission consent agreement.
Several commenters assert that the good faith negotiation requirement is a mutual obligation and
that the Commission must consider and weigh the conduct of the MVPD in assessing whether the
broadcaster has failed to satisfy the good faith negotiation requirement. Only DIRECTV asserts
that the good faith negotiation requirement applies solely to broadcasters. DIRECTV argues that
the language of Section 325(b)(3)(C) applies solely to "broadcast television stations" and in no
way, express or implied, is imposed on MVPDs.
26. We agree with DIRECTV that the language of Section 325(b)(3)(C) on its face
applies only to "television broadcast station[s]." To read the provision as a mutual obligation
would contradict the express language of the statute and controvert Congress' intent. Moreover,
Congress has demonstrated its ability to expressly impose a good faith negotiation obligation on
both parties in other provisions of the Communications Act. Accordingly, we conclude that the
good faith negotiation requirement in Section 325(b)(3)(C) was intended to apply only to
broadcasters. However, we caution MVPDs that seek retransmission consent that their conduct is
relevant in determining whether a broadcaster has complied with its obligation to negotiate
retransmission consent in good faith. Insistence by an MVPD on unreasonable terms and conditions
or negotiating procedures will be taken into account by the Commission in assessing a
broadcaster's observance of its good faith negotiation obligations.
C. Definition of Good Faith
27. The Notice sought comment on the criteria that should be employed to define
"good faith" and sought comment on whether the Commission should explicitly define what
constitutes good faith under Section 325(b)(3)(C). The Notice requested comment on whether to
adopt a two-part test for good faith similar to that embraced by the NLRB and by the Commission
pursuant to Section 251 of the Communications Act. The Commission also sought comment on
any other specific legal precedent upon which we should rely and any other regulatory approach
that might appropriately implement the good faith negotiation requirement of Section 325(b)(3)(C)
of the Communications Act.
28. Several commenters argue that both the NLRB and the Section 251 good faith
negotiation regimes are based upon the premise that one party to the negotiation may not have an
interest in reaching an agreement. These commenters argue that, because broadcasters want their
programming transmitted to the widest possible audience to increase advertising revenue and
MVPDs desire valuable broadcast programming, both broadcasters and MVPDs have strong
incentives for reaching retransmission consent. Several commenters support a two-part test to
determine good faith similar to that suggested in the Notice. Fox asserts that, if the Commission
adopts a two-part test for determining good faith, the specific actions that would constitute lack of
good faith should be "narrowly drawn to encompass only the most obvious and egregious breaches
of good faith negotiating practices, and the Commission should always examine the factual context
in which each alleged prohibition occurred."
29. Time Warner proposes that the Commission adopt a "zone of reasonableness"
standard for good faith in which, even if the broadcaster satisfies all of the procedural indicia of
good faith, the Commission could determine that it violated its duty to negotiate in good faith "if it
insists [on] a level of consideration that is so plainly uneconomic that an MVPD would suffer
greater financial harm from accepting the broadcaster's terms than from refusing to carry the
station." NBC maintains that the Commission should contrive no standards before the fact.
Instead, to the extent standards are appropriate, they should be developed out of actual experience
in adjudicated controversies. Several commenters argue that the Commission should judge the
conduct of the parties only by examining the totality of the circumstances.
30. We will adopt a two part test for good faith negotiation as proposed in the Notice.
We believe that this test best implements Congress' intent in adopting the good faith negotiation
requirement. A two-part test follows well established precedent in the field of labor law. In
addition, the Commission has used a similar test in implementing its statutory obligations under
Section 251 of the Communications Act. Through the objective standards, this approach gives
immediate guidance to the parties to retransmission consent negotiations that certain conduct will
not be tolerated. Through the broader, totality of the circumstances test, the Commission will have
the ability to prohibit conduct that, while not constituting a failure of good faith in all
circumstances, does violate the good faith negotiation requirement in the context of a given
negotiation. The totality of the circumstances test will also enable the Commission to continue
refining and clarifying the responsibilities of parties to retransmission consent negotiations.
31. The first part of the test will consist of a brief, objective list of negotiation
standards. Because the list consists of per se standards, of necessity, the standards must be concise,
clear and constitute a violation of the good faith standard in all possible instances. Should an
MVPD demonstrate to the Commission that a broadcaster, in the conduct of a retransmission
consent negotiation, has engaged in actions violative of an objective negotiation standard, the
Commission would find that the broadcaster has breached its duty to negotiate in good faith. We
disagree with those commenters who assert that the Commission should only define violations on
a prospective adjudicatory basis. Given the short, six-month, period in which satellite carriers have
to negotiate retransmission consent before expiration of the compulsory license of Section
325(b)(2)(E), we believe it incumbent upon us to provide as much initial guidance as possible
through which the parties may pursue negotiations.
32. The second part of the test is a totality of the circumstances standard. Under this
standard, an MVPD may present facts to the Commission which, even though they do not allege a
violation of the objective standards, given the totality of the circumstances reflect an absence of a
sincere desire to reach an agreement that is acceptable to both parties and thus constitute a failure
to negotiate in good faith. We do not intend the totality of the circumstances test to serve as a
"back door" inquiry into the substantive terms negotiated between the parties. While the
Commission will not ordinarily address the substance of proposed terms and conditions or the
terms of actual retransmission consent agreements, we will entertain complaints under the totality
of the circumstances test alleging that specific retransmission consent proposals are sufficiently
outrageous, or evidence that differences among MVPD agreements are not based on competitive
marketplace considerations, as to breach a broadcaster's good faith negotiation obligation.
However, complaints which merely reflect commonplace disagreements encountered by negotiating
parties in the everyday business world will be promptly dismissed by the Commission.
33. The Commission sought comment on specific actions or practices that would
constitute per se violations of the duty to negotiate in good faith in accordance with Section
325(b)(3)(C). In addition to any other actions or practices, the Commission asked commenters to
address whether it would be appropriate to include in any such list provisions similar to the
violations of the obligation to negotiate interconnection agreements in good faith set forth in
Section 51.301 of the Commission's rules. The Commission acknowledged, however, that the
good faith standard of SHVIA is different in significant respects to that contained in Section 51.301
of the Commission's rules.
34. Commenters proposed numerous standards that the Commission should consider
in adopting rules to enforce the good faith negotiation requirement. Broadcasters generally argue
that, to the extent it does anything, the Commission should adopt streamlined rules that apply only
to the process of the negotiations between broadcasters and MVPDs. The other group, consisting
of satellite carriers, small cable operators and alternative MVPDs, argues that the only way the
Commission can effectively enforce the good faith negotiation requirement is to involve itself in
the substantive terms of retransmission consent agreements as well as the process of negotiations.
These commenters propose that the Commission adopt an extensive list of substantive terms and
conditions that should be prohibited as violations of the obligation to negotiate retransmission
consent agreements in good faith.
35. Broadcast commenters propose several standards based on experience gathered in
the NLRB field, the absence of which indicates a lack of good faith, including: (1) a party must
have a sincere desire to reach agreement, (2) a party's negotiator must have authority to conclude
a deal, (3) a party must offer to meet at reasonable times and convenient places, and (4) a party
must agree to execute a written agreement once all terms have been agreed on. NBC proposes that
extrinsic evidence that a party never intended to reach agreement, or extrinsic evidence of an
understanding with a third party that the negotiating party will not enter into a retransmission
consent agreement, should also evidence violations of the good faith negotiation requirement.
Other commenters would prohibit a broadcaster from insisting on terms so unreasonable that they
are tantamount to a refusal to deal. EchoStar argues that such procedural violations are
meaningless because "no bad faith actor would be so inept or so artless as to display its bad faith by
not agreeing to a convenient time and place to meet, not appointing a representative to negotiate,
and not committing to writing a retransmission agreement once a deal has been reached."
36. DIRECTV proposes the following list of good faith negotiation standards based
upon examples from labor law precedent, the Commission's program access rules, the
interconnection provisions of the 1996 Act, and recognized marketplace dynamics. DIRECTV,
supported by other commenters, proposes that, during the negotiation of a retransmission consent
agreement, a broadcaster may not:
(a) intentionally seek to mislead or coerce the MVPD into reaching an agreement it
would not otherwise have made;
(b) unreasonably obstruct or delay negotiations or resolutions of disputes;
(c) refuse to designate a representative with authority to make binding representations
if such refusal significantly delays resolution of issues;
(d) refuse to negotiate in fact;
(e) refuse to provide the satellite carrier with a high quality, direct feed of the
broadcast signal;
(f) engage in discrimination in the price, terms or conditions of retransmission consent
afforded an MVPD relative to any other MVPD, unless such discrimination is
related to "competitive marketplace conditions" as defined by the Commission . .
.;
(g) offer unreasonable positions, including, but not limited to:
1. a unilateral requirement that retransmission consent for a given broadcast
station be conditioned on carriage under retransmission consent of another
broadcast station, either in the same or a different geographic market;
2. a unilateral requirement that retransmission consent be conditioned on the
exclusion of carriage under retransmission consent of other broadcast
channels in a given market;
3. a unilateral requirement that retransmission consent be conditioned on a
broadcaster obtaining channel positioning rights on the satellite carrier's
system;
4. a unilateral requirement that the satellite carrier (i) commit to purchase
advertising on the broadcast station or broadcaster affiliated media, or (ii)
that a specified share of advertising dollars spent in a broadcaster's market
be spent on that broadcaster;
5. a unilateral requirement that retransmission consent be conditioned on a
satellite carrier not retransmitting distant network signals to qualified
subscribers in the market, or a satellite carrier "capping" the number of
qualified subscribers in the market who may receive distant network
signals, thus depriving eligible subscribers of their statutory right to
subscribe to distant network signals;
6. A unilateral requirement that retransmission consent be conditioned on the
satellite carrier's carriage of digital signals.
To this list EchoStar, would add: (i) insisting on an unreasonably short contract duration; (ii)
threatening to run anti-satellite advertising; and (iii) refusal to deal, whether explicit or disguised
under requests for extortionate terms. Several commenters would include the imposition of non-
optional tying arrangements requiring an MVPD to carry the affiliated programming of the
broadcaster in exchange for retransmission consent. Other commenters suggest a standard
requiring parties to provide information necessary to reach agreement.
37. Several commenters propose a standard prohibiting instances in which a
broadcaster seeks higher consideration from an MVPD for any affiliated cable network
programming in exchange for retransmission consent than it obtains from the incumbent cable
operator, unless the broadcaster justifies that such higher consideration is cost-based or does not
produce anti-competitive market conditions. In addition, BellSouth urges the Commission to find
a violation when a broadcaster ties retransmission consent to minimum subscriber penetration
levels. Another commenter would also brand as a good faith violation a demand of a
nondisclosure agreement, a demand that the MVPD attest that the agreement complies with all
applicable laws, or the refusal to include a provision permitting the agreement to be amended to
reflect subsequent changes in the law.
38. Several broadcast commenters assert that the list of violations proposed by
DIRECTV, EchoStar and others is so extensive and one-sided as to render any notion of equality at
the bargaining table meaningless. Other commenters assert that, since the adoption of the 1992
Cable Act, carriage of additional programming as compensation for retransmission consent is most
often the compensation agreed upon by broadcasters and MVPDs in their retransmission consent
agreements. Disney argues that the legislative history of the 1992 Cable Act expressly endorsed
such compensation and that, had Congress wished to prohibit the practice, it would have done so
expressly. Disney further argues that no commenter offers a sustainable legal basis for presuming
on a blanket basis that a request for additional programming carriage as consideration for
retransmission consent would be illegal under current law or anti-competitive.
39. Consistent with our determination that Congress intended that the Commission
should enforce the process of good faith negotiation and that the substance of the agreements
generally should be left to the market, we will not adopt the suggestions of certain commenters that
we prohibit proposals of certain substantive terms, such as offering retransmission consent in
exchange for the carriage of other programming such as a cable channel, another broadcast signal,
or a broadcaster's digital signal. Instead, we believe that the good faith negotiation requirement of
SHVIA is best implemented through the following standards derived from NLRB precedent,
commenter's proposals and the Section 251 interconnection requirements. These standards are
intended to identify those situations in which a broadcaster did not enter into negotiations with the
sincere intent of trying to reach an agreement acceptable to both parties.
40. First, a broadcaster may not refuse to negotiate with an MVPD regarding
retransmission consent. Section 325(b)(3)(C) affirmatively requires that broadcasters negotiate
retransmission consent in good faith. This requirement goes to the very heart of Congress'
purpose in enacting the good faith negotiation requirement. Outright refusal to negotiate clearly
violates the requirement of Section 325(b)(3)(C). Broadcasters must participate in retransmission
consent negotiations with the intent of reaching agreement. Provided that the parties negotiate in
good faith in accordance with the Commission's standards, failure to reach agreement does not
violate Section 325(b)(3)(C). Given the economic incentive for each side to reach agreement, we
are hopeful that such impasses will be rare and short-lived.
41. Second, a broadcaster must appoint a negotiating representative with authority to
bargain on retransmission consent issues. Failure to appoint a negotiating representative vested
with authority to bargain on retransmission consent issues indicates that a broadcaster is not
interested in reaching an agreement. This standard is the norm in NLRB precedent as well as our
interconnection rules implementing Section 251. This requirement does not empower MVPDs to
demand that specific officers or directors of a broadcaster attend negotiation sessions. Provided
that a negotiating representative is vested with the authority to make offers on behalf of the
broadcaster and respond to counteroffers made by MVPDs to the broadcaster, this standard is
satisfied.
42. Third, a broadcaster must agree to meet at reasonable times and locations and
cannot act in a manner that would unduly delay the course of negotiations. Refusal to meet at
reasonable times and locations belies a good faith intent to negotiate. This requirement does not
preclude negotiations conducted via telephone, facsimile, or by letter. Reasonable response times
and unreasonable delays will be gauged by the breadth and complexity of the issues contained in an
offer. The Commission is aware that, in many cases, time will be of the essence in retransmission
consent negotiations, particularly as we approach the end of the six-month period provided for in
Section 325(b)(2)(E) May 29, 2000. We advise broadcasters that, in examining violations of this
standard, we will consider the proximity of the termination of retransmission consent and the
consequent service disruptions to consumers. At the same time, we caution MVPDs that waiting
until the eleventh hour to initiate negotiations will also be taken into account in enforcing this
standard.
43. Fourth, a broadcaster may not put forth a single, unilateral proposal and refuse to
discuss alternate terms or counter-proposals. "Take it, or leave it" bargaining is not consistent with
an affirmative obligation to negotiate in good faith. For example, a broadcaster might initially
propose that, in exchange for carriage of its signal, an MVPD carry a cable channel owned by, or
affiliated with, the broadcaster. The MVPD might reject such offer on the reasonable grounds that
it has no vacant channel capacity and request to compensate the broadcaster in some other way.
Good faith negotiation requires that the broadcaster at least consider some form of consideration
other than carriage of affiliated programming. This standard does not, in any way, require a
broadcaster to reduce the amount of consideration it desires for carriage of its signal. This standard
only requires that broadcasters be open to discussing more than one form of consideration in
seeking compensation for retransmission of its signal by MVPDs.
44. Fifth, a broadcaster, in responding to an offer proposed by an MVPD, must provide
reasons for rejecting any aspects of the MVPD's offer. Blanket rejection of an offer without
explaining the reasons for such rejection does not constitute good faith negotiation. This provision
merely ensures that MVPDs are not negotiating in a vacuum and understand why certain terms are
unacceptable to the broadcaster so that the MVPD can respond to the broadcaster's concerns. We
reiterate that good faith negotiation requires a broadcaster's affirmative participation. However,
this standard is not intended as an information sharing or discovery mechanism. Broadcasters are
not required to justify their explanations by document or evidence.
45. Sixth, a broadcaster is prohibited from entering into an agreement with any party
a condition of which is to deny retransmission consent to any MVPD. For example, Broadcaster
A is prohibited from agreeing with MVPD B that it will not reach retransmission consent with
MVPD C. It is impossible for a broadcaster to engage in good faith negotiation with an MVPD
regarding retransmission consent when it has a contractual obligation not to reach agreement with
that MVPD.
46. Finally, once the parties reach agreement on the terms of retransmission
consent, the broadcaster must agree to execute a written retransmission consent
agreement that sets forth the full agreement. Because the Commission may be called
upon in certain instances to determine whether the totality of the circumstances
involved in the negotiation of a particular retransmission consent agreement complies
with Section 325(b)(3)(C), it is vital that the parties reduce their entire agreement to
writing. In addition, this requirement also minimizes subsequent misunderstandings
between the parties related to their respective obligations.
47. We do not believe that we should at this time adopt further objective standards as
proposed by the commenters. In appropriate instances, we will consider the conduct at the heart
of such proposed standards when we examine a particular retransmission consent negotiation under
the totality of the circumstances test.
48. The Notice further observed that Section 325(b)(3)(C) provides that:
it shall not be a failure to negotiate in good faith if the television broadcast
station enters into retransmission consent agreements containing different
terms and conditions, including price terms, with different multichannel
video programming distributors if such different terms and conditions are
based on competitive marketplace considerations.
The Notice sought comment on what constitutes a competitive marketplace consideration. The
Notice also observed that the Commission has adopted non-discrimination standards in both the
program access and open video system contexts and sought comment on the relevance, if any, of
these standards to what constitutes a "competitive market consideration." In addition, the Notice
sought comment on any other factors or approaches to determining what constitutes competitive
marketplace considerations under Section 325(b)(3)(C).
49. A number of commenting parties urge that the competitive marketplace
considerations language be interpreted as a requirement that the Commission judge the good faith
of all retransmission consent offers based on whether they are based on "competitive marketplace
considerations." DIRECTV and EchoStar, for example, claim that competitive marketplace
considerations would permit a broadcaster to discriminate between providers only in scenarios
where Congress and the Commission have recognized that certain variance in price, terms or
conditions correspond to legitimate behavior that may occur in the marketplace for video
programming.
50. EchoStar asserts that, generally where a broadcaster has received any consideration
for retransmission consent, it has been non-monetary, carriage of cable networks affiliated with the
broadcaster, and argues that:
The general rule, therefore, should be that broadcaster demands deviating
from that formula, such as demands for money, demands for carriage of
additional cable networks beyond those involved in the retransmission-for-
carriage agreements with cable operators, or demands for retransmission
of additional broadcast stations (beyond those owned and operated by the
same network), should be presumptively viewed as not based on
competitive marketplace considerations.
51. NAB argues that satellite carriers are not nascent businesses that need government
protection, but instead are well-financed, powerfully-backed competitors in the multichannel
marketplace. Commenters argue that satellite companies not only use local stations to increase the
attractiveness of their overall product, but also sell the stations to viewers at substantial prices. One
commenter notes that the fact that satellite carriers are able to charge a fee for retransmitted local
signals demonstrates that these signals have value for which broadcasters must be compensated.
EchoStar counters that "the only reason . . . consumers purchase a satellite carrier's local signal
offering is for value that the satellite carrier provides, including increased quality, convenience, and
aesthetics (i.e., lack of off-air antenna)."
52. Commenters assert that, in the early 1990s, when the retransmission consent
provisions of the 1992 Cable Act first became effective, cable systems were effectively the only
distributors from whom broadcasters could seek consideration through retransmission consent.
Broadcasters assert that they were at a tremendous disadvantage because only a single buyer was
prepared to bid for their product. Broadcast commenters state that, today, the existence of multiple
MVPDs in at least some markets creates a more competitive marketplace for the sale of
retransmission rights, and one that provides more opportunity for stations seeking to obtain
compensation for granting these valuable rights. NAB states that the existence of multiple buyers
is obviously a very important competitive marketplace consideration in this market, as in any
market. EchoStar counters that multiple competitors in a market only serve to increase a
broadcaster's ability to play one MVPD distributor against another in retransmission negotiations,
an ability Congress sought to restrain by imposing the good faith and competitive marketplace
considerations requirements on retransmission consent.
53. As discussed above, we do not believe, as a general matter, that Section
325(b)(3)(C) was intended to subject retransmission consent negotiation to detailed
substantive oversight by the Commission or indeed that there exist objective
competitive marketplace factors that broadcasters must ascertain and base any
negotiations and offers on. Indeed, in the aggregate, retransmission consent
negotiations are the market through which the relative benefits and costs to the
broadcaster and MVPD are established. Although some parties earnestly suggest, for
example, that broadcasters should be entitled to zero compensation in return for
retransmission consent or that the forms of compensation for carriage should be
otherwise limited, this seems to us precisely the judgment that Congress generally
intended the parties to resolve through their own interactions and through the efforts of
each to advance its own economic self interest.
54. EchoStar suggests an economic paradigm against which retransmission terms might be
compared to determine if they are based on "competitive marketplace considerations." It suggests
that in the ideal competitive market setting, revenues will be just sufficient to compensate providers
for the costs of program creation, duplication, and distribution so that all participants are earning a
fair rate of return. Further, having already noted that the marketplace may be distorted through the
exercise of market power by cable operators, EchoStar urges that retransmission consent term
outcomes for the cable industry provide a benchmark or threshold that should not be exceeded in
the case of satellite carriage of broadcast signals. Further, it asserts that considerations extracted
from certain cable operators (for example carriage of digital signals) would be inappropriate and
not based on competitive marketplace consideration if they were significantly costlier to accede to
for satellite carriers.
55. In our view this type of regulatory analysis and comparison is not what was
intended through the enactment of Section 325(b)(3)(C). It is both internally inconsistent and not
capable of administration in any reasonably timely fashion. The proposal is internally inconsistent
in that it acknowledges that among the market participants, cable operators might be the most likely
to have market power. If this were the case, using their negotiations as a proxy for a competitive
market setting would not be logical. Under this analysis, broadcasters, already the hypothesized
victims of an exercise of market power, would be obligated to continue in that role with other
participants in the market. Further, EchoStar finds one of the most common features of these
agreements payment for carriage through the devotion of channel capacity to other affiliated
services presumptively a measure of bad faith. Acceptance of the cash rate but not the other
currency of the negotiation could hardly be a replication of a competitive market. Even if these
problems could be overcome, however, it seems unlikely that the data needed to measure a
transaction against the economic model proposed would be available either to the parties in the
course of their negotiations or to the Commission in the course of trying to judge their compliance
with the standard of review proposed.
56. We also believe that to arbitrarily limit the range or type of proposals that
the parties may raise in the context of retransmission consent will make it more
difficult for broadcasters and MVPDs to reach agreement. By allowing the greatest
number of avenues to agreement, we give the parties latitude to craft solutions to the
problem of reaching retransmission consent. The comments filed in this proceeding
have called into question the legitimacy of a number of bargaining proposals as
reflecting a failure of good faith or as presumptively not based on competitive
marketplace considerations. As discussed, it is important that we provide the parties
with as much initial guidance as possible. We believe that the following examples of
bargaining proposals presumptively are consistent with competitive marketplace
considerations and the good faith negotiation requirement:
1. Proposals for compensation above that agreed to with other MVPDs in the same
market;
2. Proposals for compensation that are different from the compensation offered by
other broadcasters in the same market;
3. Proposals for carriage conditioned on carriage of any other programming, such
as a broadcaster's digital signals, an affiliated cable programming service, or
another broadcast station either in the same or a different market;
4. Proposals for carriage conditioned on a broadcaster obtaining channel
positioning or tier placement rights;
5. Proposals for compensation in the form of commitments to purchase advertising
on the broadcast station or broadcast-affiliated media; and
6. Proposals that allow termination of retransmission consent agreement based on
the occurrence of a specific event, such as implementation of SHVIA's satellite
must carry requirements.
Each of the above proposals reflect presumptively legitimate terms and conditions or forms of
consideration that broadcasters may find impart value in exchange for the grant of retransmission
consent to an MVPD. We do not find anything to suggest that, for example, requesting an MVPD
to carry an affiliated channel, another broadcast signal in the same or another market, or digital
broadcast signals is impermissible or other than a competitive marketplace consideration. Prior to
passage of the 1992 Cable Act, the compensation paid by MVPDs for broadcast signal
programming carriage was established under the copyright laws through a governmental
adjudicatory process. After passage of the 1992 Cable Act, Congress left the negotiation of
retransmission consent to the give and take of the competitive marketplace. In SHVIA, absent
conduct that is violative of national policies favoring competition, we believe Congress intended
this same give and take to govern retransmission consent. In addition, we point out that these are
bargaining proposals which an MVPD is free to accept, reject or counter with a proposal of its own.
57. We find it more difficult to develop a similar list of proposals that indicate
an automatic absence of competitive marketplace considerations. Because the size and
relative bargaining power of broadcasters and MVPDs range from satellite master
antenna television ("SMATV") operators and low power television broadcast stations
to national cable entities and major-market, network affiliate broadcast television
stations, the dynamics of specific retransmission consent negotiations will span a
considerable spectrum. In these instances, we will generally rely on the totality of the
circumstances test to determine compliance with Section 325(b)(3)(C).
58. At the same time, it is implicit in Section 325(b)(3)(C) that any effort to
stifle competition through the negotiation process would not meet the good faith
negotiation requirement. Considerations that are designed to frustrate the functioning
of a competitive market are not "competitive marketplace considerations." Conduct
that is violative of national policies favoring competition -- that is, for example,
intended to gain or sustain a monopoly, is an agreement not to compete or to fix prices,
or involves the exercise of market power in one market in order to foreclose
competitors from participation in another market -- is not within the competitive
marketplace considerations standard included in the statute. Following this reasoning,
we believe that the following examples of bargaining proposals presumptively are not
consistent with competitive marketplace considerations and the good faith negotiation
requirement:
1. Proposals that specifically foreclose carriage of other programming services by
the MVPD that do not substantially duplicate the proposing broadcaster's
programming;
2. Proposals involving compensation or carriage terms that result from an exercise
of market power by a broadcast station or that result from an exercise of market
power by other participants in the market (e.g., other MVPDs) the effect of
which is to hinder significantly or foreclose MVPD competition;
3. Proposals that result from agreements not to compete or to fix prices; and
4. Proposals for contract terms that would foreclose the filing of complaints with
the Commission.
D. Carriage While a Complaint is Pending
59. Several MVPD commenters argue that where a MVPD shows a willingness to
negotiate for continued carriage of a local broadcast station, the station should have an affirmative
duty to negotiate terms for such carriage and should not be permitted to withhold retransmission
consent while such negotiations are pending. Other commenters assert that the Commission should
prohibit a broadcaster from withdrawing existing retransmission consent given to an MVPD until
an exclusivity or good faith complaint is denied by the Cable Services Bureau and, if
reconsideration is requested, the full Commission. These commenters note that local television
stations enjoy similar protection when a cable operator seeks to drop the broadcaster via the
Commission's market modification process. NAB and Network Affiliates assert that Congress
expressly rejected this approach in SHVIA by requiring that upon the expiration of the six-month
grace period outlined in Section 325(b)(2)(E), satellite carriers must obtain consent prior to
retransmitting any programming or face stiff penalties, including mandatory civil liability of
$25,000 per station, per day.
60. Two equally unambiguous provisions of SHVIA foreclose the approach advanced
by MVPD commenters. First, Section 325(b)(1) of the Communications Act provides that "No
cable system or other multichannel video programming distributor shall retransmit the signal of the
broadcasting station, or any part thereof, except . . . with the express authority of the originating
station. . . ." This language clearly prohibits an MVPD, except during the six-month period
allowed under Section 325(b)(2)(E), from retransmitting a broadcasters signal if it has not obtained
express retransmission consent. Second, Section 325(e) of the Communications Act establishes a
streamlined complaint procedure through which broadcasters may seek redress for allegedly illegal
retransmission of local broadcast signals by satellite carriers. The procedures established by
Section 325(e) provide only four defenses that a satellite carrier may raise: (1) the satellite carrier
did not retransmit the broadcaster's signal to any person in the local market of the broadcaster
during the time period specified in the complaint; (2) the broadcaster had in writing expressly
allowed the satellite carrier to retransmit the broadcaster's signal to the broadcaster's local market
for the entire period specified in the complaint; (3) the retransmission was made after January 1,
2002 and the broadcaster elected to assert the right to must carry against the satellite carrier under
Section 338 for the entire period specified in the complaint; and (4) the station being retransmitted
is a noncommercial television broadcast station. Against the backdrop of the express language of
these provisions, we see no latitude for the Commission to adopt regulations permitting
retransmission during good faith negotiation or while a good faith or exclusivity complaint is
pending before the Commission where the broadcaster has not consented to such retransmission.
61. Having reached this conclusion, we must also express our concern regarding the
service disruptions and consumer outrage that will inevitably result should MVPDs that are entitled
to retransmit local signals subsequently lose such authorization. Because the market has functioned
adequately since the advent of retransmission consent in the early 1990's, we expect such instances
to be the exception, rather than the norm. We are encouraged by the retransmission consent
agreements that have been reached between broadcasters and satellite carriers prior to the
enactment of our rules. In addition, we strongly encourage that broadcasters and MVPDs that are
engaged in protracted retransmission consent negotiations agree to short-term retransmission
consent extensions so that consumers' access to broadcast stations will not be interrupted while the
parties continue their negotiations.
E. Existing and Subsequent Retransmission Consent Agreements
62. In the Notice, the Commission acknowledged the existence of retransmission
consent agreements between satellite carriers and television broadcast stations that predate
enactment of Section 325(b)(3)(C). In addition, the Notice acknowledged that agreements have
been executed since the enactment of SHVIA. The Notice sought comment on the impact of these
agreements on the duty to negotiate in good faith.
63. Network Affiliates state that the fact that broadcasters and satellite carriers have
already reached arms length retransmission consent agreements is an indication that they were
negotiated in good faith. Otherwise, in the face of impending legislation and Commission action,
they assert the parties would not have finalized such agreements. Another commenter argues that
the rules adopted by the Commission should have prospective effect applying only to
retransmission consent negotiations that occur after the effective date of the Commission's rules.
One commenter urges the Commission to give its rules retroactive application to preexisting
retransmission consent agreements.
64. We will not apply the rules adopted herein to retransmission consent agreements
that predate the effective date of this Order. Section 325(b)(3)(C) provides that:
Within 45 days after the date of the enactment of [SHVIA], the
Commission shall commence a rulemaking proceeding to revise the
regulations governing the exercise by television broadcast stations of the
right to grant retransmission consent under this subsection, and such other
regulations as are necessary to administer the limitations contained in
paragraph (2) . . . Such regulations shall . . . until January 1, 2006, prohibit
a television broadcast station that provides retransmission consent from
engaging in exclusive contracts for carriage or failing to negotiate in good
faith . . .
As the quoted language indicates, Section 325 is not a self-effectuating provision. It has substance
and structure only after the Commission has concluded its rulemaking to implement the good faith
and exclusivity limitations of Section 325(b)(3)(C). Moreover, we need not apply SHVIA
retroactively to ensure that such preexisting agreements do not contain impermissible exclusivity
provisions. Section 76.64(m) of the Commission's rules has been in effect since 1993 and
expressly prohibits exclusive retransmission consent agreements. If any MVPD believes that a
broadcaster and an MVPD entered into a prohibited exclusive retransmission consent agreement
prior to adoption of SHVIA, that party may file a petition for special relief alleging that a
broadcaster and MVPD have violated Section 76.64(m). Accordingly, the rules applicable to good
faith and exclusivity adopted herein will apply only to retransmission consent agreements adopted
after the effective date of this Order.
V. EXCLUSIVE RETRANSMISSION CONSENT AGREEMENTS
65. SHVIA amends Section 325(b) of the Communications Act by directing the
Commission to promulgate rules that would
until January 1, 2006, prohibit a television broadcast station that provides retransmission
consent from engaging in exclusive contracts. . . .
The accompanying Joint Explanatory Statement of the Committee of Conference contains no
language to clarify or explain the prohibition, stating only that:
The regulations would, until January 1, 2006, prohibit a television broadcast station from
entering into an exclusive retransmission consent agreement with a multichannel video
programming distributor . . .
The Commission, by rule, established a similar prohibition following passage of the 1992 Cable
Act. There, the Commission was directed by Congress to establish regulations governing the right
of television broadcast stations to grant retransmission consent. The Commission found that
exclusive retransmission consent arrangements between a television broadcast station and any
multichannel video programming distributor were contrary to the intent of the 1992 Cable Act.
66. In the Notice, we sought to determine what activities would constitute "engaging
in exclusive contracts." We also sought to determine whether there was significance to the
difference between the language in the statute (prohibiting "engaging in") and the language in the
Conference Report (prohibiting "entering into"). We sought to determine whether parties were
prohibited from negotiating exclusive contracts that would take effect after the date of January 1,
2006. We also sought comment on whether any such contracts already existed, and if so, what
effect the statute would have on such contracts. Finally, we sought comment on how to effectively
enforce such a prohibition, and how to determine whether such agreements existed.
67. SHVIA prohibits a television broadcast station that provides retransmission consent
from "engaging in" exclusive contracts until January 1, 2006. The Conference Report refers to a
prohibition on "entering into" exclusive retransmission consent agreements. Several commentators
argue that the phrases "entering into" and "engaging in" are synonymous. Representatives of the
satellite industry argue that the Commission should rely on the broader language of the statute
("engaging in") rather than the arguably narrower Conference Report language. Commenters
supporting this interpretation posit that the use of the language "engaging in" demonstrates an
intent to prohibit a broad range of practices. SBCA believes that the use of the phrase "engaging
in" prohibits "both express and implied, de jure and de facto, exclusionary conduct, including literal
or effective refusals to deal with a particular MVPD distributor." Two other commenters argue that
broadcasters can impose unaffordable demands on smaller MVPDs, and that these demands can
result in prohibited de facto exclusivity. Thus, according to this argument, the Commission should
expand its prohibition to explicitly forbid these types of arrangements. LTVS supports an
expansive definition of exclusive practices and argues that a broad range of actions should be
prohibited.
68. While the satellite industry supports a broad reading of the statute, broadcast
commenters argue that Congress intended to prohibit exclusive contracts, not "undefined 'exclusive
practices' nor . . . the exercise of any de facto exclusivity." Network Affiliates assert that the use
of the phrase "engaging in" does not demonstrate Congressional intent to "increase the number of
prohibited activities." Indeed, these commenters argue that by using the phrase "engaging in" as
opposed to the phrase "entering in," Congress "intended to allow parties to negotiate and enter into
exclusive retransmission consent agreements as long as those agreements are not effective until
after the sunset of this prohibition on January 1, 2006." Under this theory, the statute only
prohibits "engaging in exclusive contracts." Thus, according to broadcasting representatives,
SHVIA does not prohibit undefined exclusive practices or the exercise of de facto exclusivity.
69. In determining the intended scope of the prohibition on exclusive retransmission
consent agreements, we believe that Congress intended that all activity associated with exclusive
retransmission consent agreements be prohibited until January 1, 2006. Absent such a
comprehensive prohibition, marketplace distortions could occur that would adversely influence the
continuing development of a competitive marketplace for multichannel video programming
services. For example, if an MVPD negotiates an exclusive retransmission consent agreement with
a television broadcaster that will take effect after January 1, 2006, such MVPD undoubtedly would
use that agreement in advertising or marketing strategies during the prohibition on exclusive
retransmission consent agreements. The MVPD could market its services by stating that it will be
the only MVPD providing a particular television broadcast station or stations after January 1, 2006.
Given the overall pro-competitive mandate of SHVIA, we believe that Congress did not intend that
we permit this type of market distortion while the Section 325(b)(3)(C) prohibitions are in effect.
As such, we interpret the phrase "engaging in" to proscribe not only entering into exclusive
agreements, but also negotiation and execution of agreements granting exclusive retransmission
consent after the prohibition expires.
70. As for the exercise of de facto exclusivity, we believe that the statute's good faith
requirement sufficiently addresses concerns voiced by commenters. The good faith requirements
of the statute and the Commission's rules adopted in this Order should adequately address behavior
that would lead to de facto exclusivity.
71. On its face, the prohibition on exclusive retransmission consent agreements appears
to have immediate effect. The Commission sought comment on the existence of exclusive satellite
carrier retransmission consent agreements that either predate the enactment of SHVIA or under the
Commission's rules implementing Section 325(b)(3)(C)(ii). One commenter argues that the
Commission should nullify any exclusive retransmission consent agreements that existed prior to
SHVIA. The commenter suggests that the Commission's authority to nullify any such agreements
stems from the requirements of the Commission's rules. Another commenter argues that the
Commission should apply rules implementing the SHVIA prohibition on exclusive retransmission
consent agreements retroactively. Some commenters from the broadcasting industry argue that
any such agreements that were in existence prior to the enactment of SHVIA should be
grandfathered.
72. Prior to the enactment of SHVIA, Section 76.64(m) of the Commission's rules
prohibited all exclusive retransmission consent agreements. After its enactment, SHVIA prohibits
all exclusive retransmission consent agreements prior to January 1, 2006. Thus, to the extent that
any prohibited exclusive retransmission consent agreements exist between television broadcast
stations and MVPDs, such agreements are prohibited either by Commission rule prior to SHVIA,
or by SHVIA's express terms thereafter.
VI. RETRANSMISSION CONSENT AND EXCLUSIVITY COMPLAINT
PROCEDURES
A. Voluntary Mediation
73. The Notice sought comment on whether there are circumstances in which the use
of alternative dispute resolution ("ADR") services would assist in determining whether a television
broadcast station negotiated in good faith as defined by Section 325(b)(3)(C) and the Commission's
rules adopted thereunder. Several commenters argue that a dispute resolution mechanism is not
necessary and contrary to the goal of swift resolution of such complaints. By contrast, Time
Warner supports a mediation requirement that must be satisfied prior to the filing of a complaint
with the Commission. Under Time Warner's proposal, the parties would have 60 days to negotiate
in good faith. If an agreement has not been reached 30 days or less prior to the termination of
retransmission consent, either party can require that the matter be submitted to mediation.
74. We will not, at this time, adopt Time Warner's mandatory mediation proposal.
There has not been a sufficient demonstration that such a measure is necessary to implement the
good faith provision of Section 325(b)(3)(C). We believe, however, that voluntary mediation can
play an important part in the facilitation of retransmission consent and encourage parties involved
in protracted retransmission consent negotiations to pursue mediation on a voluntary basis. The
Commission would favorably consider a broadcaster's willingness to participate in a mediation
procedure in determining whether such broadcaster complied with its good faith negotiation
obligations. We emphasize, however, that refusal to engage in voluntary mediation will not be
considered probative of a failure to negotiate in good faith. We will revisit the issue of mandatory
retransmission consent mediation if our experience in enforcing the good faith provision indicates
that such a measure is necessary.
B. Commission Procedures
75. The Notice sought comment on what procedures the Commission should employ
to enforce the provisions adopted pursuant to Section 325(b)(3)(C). We asked commenters to state
whether the same set of enforcement procedures should apply to both the exclusivity prohibition
and the good faith negotiation requirement, or whether the Commission should adopt different
procedures tailored to each prohibition. Specifically, we sought comment regarding whether
special relief procedures of the type found in Section 76.7 of the Commission's rules provide an
appropriate framework for addressing issues arising under Section 325(b)(3)(C).
76. There is general consensus among the commenters that the general pleading
provisions of Section 76.7 provide appropriate procedural rules for good faith and exclusivity
complaints. No commenters justified a departure from the Commission's general pleading rules
for matters filed with the Cable Services Bureau. We agree with these commenters urging the use
of the Section 76.7 provisions and direct complainants to follow these provisions in filing
retransmission consent complaints. Consistent with the requirements of Section 76.7 of the
Commission's rules, complaints alleging violations of the prohibition on exclusive retransmission
consent agreements should: (1) identify the broadcaster and MVPD alleged to be parties to the
prohibited exclusive agreement; (2) provide evidence that the complainant can or does serve the
area of availability, or portions thereof, of the signal of the broadcaster named in the complaint; and
(3) provide evidence that the complainant has requested retransmission consent to which the
broadcaster has refused or failed to respond. Following the filing of a complaint, the defendant
broadcaster must file an answer that specifically admits or denies the complainants allegation of the
existence of an exclusive retransmission consent agreement.
77. We agree with those commenters who argue that some aspects of the program
access procedural rules would assist the Commission in effectively processing and resolving
retransmission consent complaints. We believe that it is necessary to impose a limitations period
on the filing of retransmission consent complaints. In the program access, program carriage and
open video system contexts, the Commission has established a one-year limitations period within
which an aggrieved party must file a complaint with the Commission. Given that retransmission
consent complaints are likely to be highly fact-specific and dependent on individual recollection,
a similar limitations period is fair and appropriate with regard to retransmission consent
complaints. Moreover, a limitations period lends finality and certainty to retransmission consent
agreements after affording MVPDs an appropriate interval to challenge alleged violations of
Section 325(b)(3)(C). Accordingly, a complaint filed pursuant to Section 325(b)(3)(C) must be
filed within one year of the date any of the following occur: (a) a complainant MVPD enters into
a retransmission consent agreement with a broadcaster that the complainant MVPD alleges violate
one or more of the rules adopted herein; or (b) a broadcaster engages in retransmission consent
negotiations with a complainant MVPD that the complainant MVPD alleges violate one or more of
the rules adopted herein, and such negotiation is unrelated to any existing contract between the
complainant MVPD and the broadcaster; or (c) the complainant MVPD has notified the broadcaster
that it intends to file a complaint with the Commission based on a request to negotiate
retransmission consent that has been denied, unreasonably delayed, or unacknowledged in violation
of one or more of the rules adopted herein.
C. Discovery
78. Several commenters urge the Commission to provide discovery as-of-right in
retransmission consent complaint proceedings. Disney observes that since there is no automatic
right to discovery in the more procedurally complex program access regime a fortiori there
should be no discovery in the context of retransmission consent proceedings. One commenter
asserts that retransmission consent agreements and the negotiations surrounding them constitute
confidential business information that must be protected by strong nondisclosure agreements if
subject to Commission-directed discovery procedures. This commenter offers three limitations on
Commission-directed discovery: (1) the complainant must have made a prima facie showing of
evidence supporting its claim that a violation has taken place; (2) the Commission's discovery
order must be narrowly-tailored to avoid fishing expeditions; and (3) the Commission must permit
mutual discovery.
79. We decline the invitation of several commenters to apply discovery as-of-right to
the retransmission complaint procedures. Interested parties should not interpret our decision as
meaning that discovery will play no part in the Section 325 complaint process. Because MVPDs
will be present at negotiations, we generally anticipate that evidence of a violation of the good faith
standard will be accessible by the MVPD complainant. Where complainants can demonstrate that
such information is not available (e.g., agreements entered into with other MVPDs) and that
discovery is necessary to the proper conduct and resolution of a proceeding, the Commission will
consider, where necessary, the imposition of discovery to develop a more complete record and
resolve complaints. In this regard, parties are free to raise appropriate discovery requests in their
pleadings. We will protect proprietary information, where necessary, pursuant to Section 76.9 of
our rules. Accordingly, we will employ Commission-controlled discovery as contemplated in the
Section 76.7 procedures.
D. Remedies
80. With regard to the appropriate measures for the Commission to take after a finding
that a broadcaster has violated the good faith negotiation requirement, several commenters argue
that the sole remedy is a Commission directive to engage in further negotiation consistent with the
Commission's decision. In this regard, other commenters note that, in the labor law context, the
Supreme Court has determined that the NLRB has no power to order parties to enter into a
particular agreement, or even agree to individual terms. EchoStar argues that this is not the limit
of the Commission's remedial authority and that the Commission should order a broadcaster that
has been found to violate the Commission's prohibitions to conclude a retransmission consent
agreement that "does not include any discriminatory terms not based on competitive marketplace
considerations." Other commenters argue that the Commission should adopt a liberal policy of
allowing damages, both as a deterrent to unlawful conduct and as compensation to injured parties.
Commenters opposing the imposition of damages note that, while Congress granted the
Commission express authority to order appropriate remedies in the program access context,
Congress did not grant such express authority in the context of the good faith negotiation
requirement.
81. Congress did not empower the Commission to sit in judgement of the substantive
terms and conditions of retransmission consent agreements. Therefore, in situations in which a
broadcaster is determined to have failed to negotiate in good faith, the Commission will instruct the
parties to renegotiate the agreement in accordance with the Commission's rules and Section
325(b)(3)(C). We reiterate, however, that the Commission will not require any party to a
retransmission consent agreement to offer or accept a specific term or condition or even to reach
agreement as part of such renegotiation.
82. Although several commenters strongly favor the imposition of damages for
adjudicated violations of Section 325(b)(3)(C), we can divine no statutory grant of authority to take
such action. Congress instructed the Commission to revise its regulations governing retransmission
consent to prohibit exclusive agreements and require good faith negotiation. We can divine no
intent in Section 325(b)(3)(C) to impose damages for violations thereof. This is especially true
where later in the same statutory provision, Congress expressly granted the District Courts of the
United States the authority to impose statutory damages of up to $25,000 per violation, per day
following a Commission determination of a retransmission consent violation by a satellite carrier.
Commenters' reliance on the program access provisions as support for a damages remedy in this
context is misplaced. The Commission's authority to impose damages for program access
violations is based upon a statutory grant of authority. We note, however, that, as with all
violations of the Communications Act or the Commission's rules, the Commission has the authority
to impose forfeitures for violations of Section 325(b)(3)(C).
E. Expedited Resolution
83. The Notice requested comment on whether expedited procedures are necessary to
the appropriate resolution of either exclusivity or good faith proceedings. Several commenters
argue that, in Section 325(e) of the Communications Act, Congress expressly required expedited
processing of broadcasters' complaints that satellite carriers have illegally retransmitted local
broadcaster signals without consent. Given this express directive by Congress, these commenters
argue that the lack of an express directive to expedite good faith negotiation complaints indicates
Congress' decision that such complaints should not receive expedited treatment. U S West,
however, notes that the Commission has wide discretion to manage its procedures "as will best
conduce to the proper dispatch of business and to the ends of justice." Disney asserts that the
Commission must ensure that good faith negotiation complaints are resolved expeditiously. In this
regard, several commenters suggest various time limits within which the Commission should
resolve complaints related to the good faith negotiation requirement and the exclusivity
prohibition.
84. Commenters generally favor expedited action by the Commission regarding
complaints filed pursuant to Section 325(b)(3)(C). Because we conclude that, upon expiration of
an MVPD's carriage rights under the Section 325(b)(2)(E) six-month compulsory license period or
an existing retransmission consent agreement, an MVPD may not continue carriage of a
broadcaster's signal while a retransmission consent complaint is pending at the Commission, it is
incumbent upon the Commission to expedite the resolution of these claims. We are mindful that
Congress has imposed no express time limits for Commission resolution of retransmission consent
complaints, whereas it has done so in other provisions of SHVIA and the Communications Act.
We believe, however, that expeditious resolution of Section 325(b)(3)(C) complaints is entirely
consistent with Congress' statutory scheme. We believe that, to ensure efficient functioning of the
retransmission consent process, and to avoid protracted loss of service to subscribers, expedited
action on these claims is necessary.
85. While commenters propose various time periods within which the Commission
should resolve retransmission consent complaints, we believe the spectrum of issues that may be
involved in these proceedings does not lend itself to selecting one time period by which the
Commission should resolve all complaints brought under Section 325(b)(3)(C). For example, it
would be inefficient and arbitrary to apply the same time period to a clear violation, such as
outright refusal to negotiate, and a violation of the test involving analysis of the totality of the
circumstances. Bearing in mind that the Commission must give maximum priority to matters
involving statutory time limits, we instruct Commission staff to give priority to Section
325(b)(3)(C) complaints and resolve them in an expeditious manner, considering the complexity of
the issues raised. We will monitor the resolution times of individual retransmission consent
complaints and, if necessary, we will revisit this issue in the future.
F. Burden of Proof
86. The Notice sought comment on how the burden of proof should be allocated. In
this regard, we asked for comment on whether the burden should rest with the complaining party
until it has made a prima facie showing and then shift to the defending party and what would
constitute a prima facie showing sufficient to shift the burden to the defending party.
87. Arguing that, consistent with NLRB cases in which the party claiming bad faith
bears the burden of proof, several commenters counsel the Commission to provide that the burden
of proof should always be on the MVPD complainant. Indeed, several commenters assert that the
Commission should adopt procedural rules that permit it to dismiss retransmission consent
complaints summarily if the MVPD fails to satisfy a specified threshold standard.
88. Other commenters support a shifting of the burden of proof after a prima facie
demonstration. Commenters assert that such a shifting is appropriate because of the difficulty of
conclusively establishing the existence of an exclusive agreement or lack of good faith. For
exclusivity complaints, DIRECTV and EchoStar suggest that a complaining party only provide
affidavits or other documentary evidence to support its belief that a prohibited exclusive contract
exists, and the burden of proof then shifts to the defendant to refute the existence of such
agreement. For good faith complaints, DIRECTV and EchoStar suggest that the complaining party
should provide a description of the conduct complained of, including conduct alleged to violate any
of the good faith negotiation standards supported by any documentary evidence or an affidavit
signed by an officer of the complaining MVPD setting forth the basis for the complainant's
allegations. After the burden has shifted to the broadcaster, commenters urge the Commission to
require the broadcaster to include with its answer a copy of any retransmission consent agreement
the complainant alleges to contain unlawfully different terms and conditions, subject to
Commission confidentiality protections. Several commenters maintain that the Commission
should impose sanctions against filers of frivolous complaints. Network Affiliates argue that the
adoption of a shifting burden mechanism will encourage the filing of frivolous complaints during
the negotiation period in order to intimidate broadcasters.
89. Commenters advance cogent arguments both for and against shifting the burden to
the broadcaster after a prima facie showing by a complaining MVPD. However, as in labor law
context, we believe the burden should rest with the MVPD complainant to establish a violation of
Section 325(b)(3)(C). This conclusion is also consistent with our belief that generally the evidence
of a violation of the good faith standard will be accessible by the complainant. This should not be
interpreted as permitting a broadcaster to remain mute in the face of allegations of a Section
325(b)(3)(C) violation. After service of a complaint, a broadcaster must file an answer as required
by Section 76.7, which advises the parties and the Commission fully and completely of any and all
defenses, responds specifically to all material allegations of the complaint, and admits or denies the
averments on which the party relies. In addition, where necessary, the Commission has discretion
to impose discovery requests on a defendant to a Section 325(b)(3)(C) complaint. However, in the
end, the complainant must bear the burden of proving that a violation occurred.
G. Sunset of Rules
G
90. Section 325(b)(3)(C) directs that the regulations adopted by the Commission
prohibit exclusive carriage agreements and require good faith negotiation of retransmission consent
agreements "until January 1, 2006." The Commission sought comment on whether the
Commission's rules regarding exclusive carriage agreements and good faith negotiation should
automatically sunset on this date. On its face, this provision would seem to sunset the prohibition
on exclusive retransmission consent agreements and good faith negotiation for all MVPDs. Under
this reading of the statute, the Commission's rule prohibiting exclusive retransmission consent
agreements for cable operators would be deemed abrogated as of January 1, 2006.
91. The broadcast industry argues that this is the correct interpretation of SHVIA. One
commenter states that "[b]ecause the statutory language is plain on its face, and because Congress
acted with knowledge of the existing regulatory prohibition, it is clear that Congress intended to
abrogate the Commission's existing rule prohibiting exclusive retransmission consent agreements
with cable operators." This commenter additionally argues that the prohibition on exclusive
retransmission consent agreements was meant to correct imbalances in the marketplace, and thus
was established as a temporary solution.
92. The satellite industry and other MVPD representatives disagree with this
interpretation of the statute. Two commenters argue that the date set out in the statute establishes
a minimum time frame on the prohibition of exclusive retransmission consent agreements and the
good faith negotiation requirement. Others state that interpreting the statute as sunsetting the
Commission's prohibitions on exclusive retransmission consent agreements runs contrary to the
intent of Congress. Specifically, they argue that nothing in the legislative history demonstrates an
intent to sunset Section 325(b)(3)(C), and without an affirmative statement of intent, no such intent
may be inferred. Commenters argue that to sunset the prohibition would result in anti-competitive
behavior, and would thus undermine the goals of SHVIA. Finally, many commenters from the
satellite industry and the MVPD industry argue that the Commission has authority to extend the
prohibition on exclusive retransmission consent agreements beyond January 1, 2006, if the
Commission determines that such an extension would be in the public interest.
93. A third approach to this issue is advanced by some representatives of the satellite
industry and the cable industry. Time Warner argues that the Commission should make no
determination at this point over whether to sunset the prohibition, but rather should make a decision
closer to the expiration date set out in the statute.
94. We believe that the statute is clear on its face, and that the correct interpretation of
the language "until January 1, 2006" is that the prohibitions on exclusive retransmission consent
agreements and the good faith negotiation requirement terminate on that date. We agree with
commentators who argue that the provisions of Section 325(b)(3)(C) are meant to foster
competition. However, in the absence of guidance from Congress as to the Commission's authority
after this date, we can not assume that Congress was establishing a minimum time frame and that
the Commission has authority to promulgate rules prohibiting exclusive retransmission consent
agreements and requiring good faith negotiation beyond January 1, 2006. Congress has
demonstrated its ability to craft legislation that established a sunset date which the Commission has
express authority to extend. Such language is not contained in SHVIA. The statute clearly states
that the provisions would last "until January 1, 2006." The legislative history does not express any
intent to extend such provisions. Thus, we must interpret Section 325(b)(3)(C) as written and that
January 1, 2006 is meant to be the sunset date for the prohibition of exclusive retransmission
consent agreements and the rules on good faith retransmission consent negotiations.
VIII. ADMINISTRATIVE MATTERS
95. Final Regulatory Flexibility Analysis. As required by the Regulatory Flexibility
Act ("RFA"), see 5 U.S.C. 603, an Initial Regulatory Flexibility Analysis ("IRFA") was
incorporated in the Notice. The Commission sought written public comments on the possible
significant economic impact of the proposed policies and rules on small entities in the Notice,
including comments on the IRFA. Pursuant to the RFA, see 5 U.S.C. 604, a Final Regulatory
Flexibility Analysis is contained in Appendix C.
96. Paperwork Reduction Act of 1995 Analysis. The actions herein have been analyzed
with respect to the Paperwork Reduction Act of 1995 and found to impose no new or modified
reporting and recordkeeping requirements or burdens on the public.
97. Effective Date. As discussed, Section 325(b)(2)(E) of the Communications Act
grants satellite carriers a six-month period during which they may retransmit the signals of local
broadcasters without a broadcaster's express retransmission consent. We have adopted these rules
before the end of the six-month period provided by Section 325(b)(2)(E) so that MVPDs,
particularly satellite carriers, and broadcasters understand their rights and obligations under Section
325(b)(3)(C) before that period expires. To afford parties the maximum amount of time to
negotiate retransmission consent in good faith and to file complaints pursuant to Section
325(b)(3)(C) before the expiration of the six-month period, this First Report and Order will be
effective upon publication in the Federal Register. We find good cause exists under the
Administrative Procedure Act ("APA") to have the rules adopted in this First Report and Order take
effect upon publication in the Federal Register pursuant to Section 553(d)(3) of the APA. Prompt
effectiveness of these rules will provide a framework under which broadcasters and satellite carriers
can achieve retransmission consent before the expiration of the six-month period set forth in
Section 325(b)(2)(E).
XCVII. ORDERING CLAUSES
98. Accordingly, IT IS ORDERED that, pursuant authority found in Sections 4(i) 4(j),
303(r) and 325 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j),
303(r) and 325, the Commission's rules ARE HEREBY AMENDED as set forth in Appendix B.
99. IT IS FURTHER ORDERED that the rule amendments set forth in Appendix B
WILL BECOME EFFECTIVE upon publication in the Federal Register.
100. IT IS FURTHER ORDERED that the Consumer Information Bureau, Reference
Information Center, SHALL SEND a copy of this First Report and Order, including the Final
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business
Administration.
Federal Communications Commission
Magalie Roman Salas
Secretary
Appendix A
Parties Filing Comments
ABC, CBS, Fox, and NBC Television Network Affiliate Associations ("Network Affiliates").
American Cable Association ("ACA").
Association of Local Television Stations, Inc. ("ALTV").
BellSouth Corporation, BellSouth Interactive Media Services, Inc. and BellSouth Wireless Cable, Inc.
("BellSouth").
CBS Corporation ("CBS").
DIRECTV, Inc. ("DIRECTV").
EchoStar Satellite Corporation ("EchoStar").
Fox Television Stations, Inc. ("Fox").
LEXCOM Cable ("LEXCOM").
Local TV on Satellite, LLC ("LTVS").
National Association of Broadcasters ("NAB").
National Broadcasting Company, Inc. ("NBC").
National Cable Television Association ("NCTA").
Satellite Broadcasting and Communications Association ("SBCA").
U S West, Inc. ("U S West").
Walt Disney Company ("Disney").
Wireless Communications Association International, Inc. ("WCA").
Parties Filing Reply Comments
American Cable Association ("ACA").
ABC, CBS, Fox, and NBC Television Network Affiliate Associations ("Network Affiliates").
Association of Local Television Stations, Inc. ("ALTV").
BellSouth Corporation, BellSouth Interactive Media Services, Inc. and BellSouth Wireless Cable, Inc.
("BellSouth").
DIRECTV, Inc. ("DIRECTV").
EchoStar Satellite Corporation ("EchoStar").
Fisher Broadcasting Inc. ("Fisher").
Hearst-Argyle Television, Inc. ("Hearst").
Lin Television Corporation ("Lin").
Local TV on Satellite, LLC ("LTVS").
National Association of Broadcasters (NAB").
National Broadcasting Company, Inc. ("NBC").
National Cable Television Association ("NCTA").
RCN Telecom Services, Inc. ("RCN").
Satellite Broadcasting and Communications Association ("SBCA").
Seren Innovations, Inc. ("Seren").
The Post Company ("Post").
Time Warner Cable ("Time Warner").
U S West, Inc. ("U S West").
Walt Disney Company ("Disney").
Young Broadcasting, Inc. ("Young").
Appendix B
Part 76 of Title 47 of the Code of Federal Regulations is amended as follows:
Part 76 Multichannel Video and Cable Television Service
1. The authority citation for Part 76 continues to read as follows:
AUTHORITY: 47 U.S.C. 151, 152, 153, 154, 301, 302, 303, 303a, 307, 308, 309, 312, 315, 317, 325,
503, 521, 522, 531, 532, 533, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 549, 552, 554, 556, 558, 560,
561, 571, 572, 573.
2. Section 76.64(m) is amended as follows:
76.64 Retransmission Consent.
*****
(m) Exclusive retransmission consent agreements are prohibited. No television broadcast station shall
make or negotiate and agreement with one multichannel video programming distributor for carriage to
the exclusion of other multichannel video programming distributors. This paragraph shall terminate at
midnight on December 31, 2005.
3. Section 76.65 is added to Subpart D to read as follows:
76.65 Good Faith and Exclusive Retransmission Consent Complaints.
(a) Duty to Negotiate in Good Faith. Television broadcast stations that provide retransmission consent
shall negotiate in good faith the terms and conditions of such agreements to fulfill the duties
established by section 325(b)(3)(C) of the Act; provided, however, that it shall not be a failure to
negotiate in good faith if the television broadcast station proposes or enters into retransmission
consent agreements containing different terms and conditions, including price terms, with different
multichannel video programming distributors if such different terms and conditions are based on
competitive marketplace considerations. If a television broadcast station negotiates with
multichannel video programming distributors in accordance with the rules and procedures set forth in
this section, failure to reach an agreement is not an indication of a failure to negotiate in good faith.
(b) Good Faith Negotiation.
(1) Standards. The following actions or practices violate a broadcast television station's duty to
negotiate retransmission consent agreements in good faith:
(A) Refusal by a television broadcast station to negotiate retransmission consent with any
multichannel video programming distributor;
(B) Refusal by a television broadcast station to designate a representative with authority make
binding representations on retransmission consent;
(C) Refusal by a television broadcast station to meet and negotiate retransmission consent at
reasonable times and locations, or acting in a manner that unreasonably delays
retransmission consent negotiations;
(D) Refusal by a television broadcast station to put forth more than a single, unilateral proposal.
(E) Failure of a television broadcast station to respond to a retransmission consent proposal of a
multichannel video programming distributor, including the reasons for the rejection of any
such proposal;
(F) Execution by a television broadcast station of an agreement with any party, a term or
condition of which, requires that such television broadcast station not enter into a
retransmission consent agreement with any multichannel video programming distributor; and
(G) Refusal by a television broadcast station to execute a written retransmission consent
agreement that sets forth the full understanding of the television broadcast station and the
multichannel video programming distributor.
(2) Totality of the circumstances. In addition to the standards set forth in subsection 76.65(b)(1), a
multichannel video programming distributor may demonstrate, based on the totality of the circumstances
of a particular retransmission consent negotiation, that a television broadcast station breached its duty to
negotiate in good faith as set forth in subsection 76.65(a).
(c) Good Faith Negotiation and Exclusivity Complaints. Any multichannel video programming
distributor aggrieved by conduct that it believes constitutes a violation of the regulations set forth in this
section or subsection 76.64(m) may commence an adjudicatory proceeding at the Commission to obtain
enforcement of the rules through the filing of a complaint. The complaint shall be filed and responded to
in accordance with the procedures specified in Section 76.7 of this part.
(d) Burden of proof. In any complaint proceeding brought under this section, the burden of proof as
to the existence of a violation shall be on the complainant.
(e) Time limit on filing of complaints. Any complaint filed pursuant to this subsection must be filed
within one year of the date on which one of the following events occurs:
(1) a complainant multichannel video programming provider enters into a retransmission consent
agreement with a television broadcast station that the complainant alleges to violate one or more
of the rules contained in this subpart; or
(2) a television broadcast station engages in retransmission consent negotiations with a complainant
that the complainant alleges to violate one or more of the rules contained in this subpart, and
such negotiation is unrelated to any existing contract between the complainant and the television
broadcast station; or
(3) the complainant has notified the television broadcast station that it intends to file a complaint
with the Commission based on a request to negotiate retransmission consent that has been
denied, unreasonably delayed, or unacknowledged in violation of one or more of the rules
contained in this subpart.
(f) Termination of rules. This section shall terminate at midnight on December 31, 2005.
Appendix C
FINAL REGULATORY FLEXIBILITY ANALYSIS
1. As required by the Regulatory Flexibility Act ("RFA"), an Initial Regulatory Flexibility
Analysis ("IRFA") was incorporated in the Notice of Proposed Rulemaking ("Notice") in CS Docket No.
99-363, FCC 99-406. The Commission sought written public comments on the proposals in the Notice,
including comment on the IRFA. This Final Regulatory Flexibility Analysis ("FRFA") conforms to the
RFA.
2. Need for, and Objectives of, this Report and Order. Section 1009 of the Satellite Home
Viewer Improvement Act ("SHVIA"), codified as Section 325 of the Communications Act of 1934, as
amended ("Act"), 47 U.S.C. 325, instructs the Commission to revise the regulations governing the
exercise by television broadcast stations of the right to grant retransmission consent. Congress directed the
Commission to devise regulations, procedures, and standards implementing a good faith requirement in the
negotiation of agreements in connection with the transmission of television broadcast station signals by
multichannel video programming distributors ("MVPDs"). This Report and Order adopts rules governing
negotiation of retransmission consent between broadcasters and all MVPDs which will help to ensure that
negotiations are conducted in an atmosphere of honesty, clarity of process and good faith. In particular, this
proceeding provides a clear framework under which broadcasters and satellite carriers can achieve
retransmission consent before expiration and interruption of local broadcast signals that satellite carriers
have begun to provide their subscribers in many cities across the nation since the enactment of the SHVIA.
Further, pursuant to the SHVIA, this proceeding also addresses implementing rules prohibiting exclusive
retransmission consent agreements. Finally, the Report and Order adopts a complaint process to assist the
Commission in enforcing the statutory obligations related to Section 325(b)(3)(C).
3. Summary of Significant Issues Raised by Public Comments in Response to the IRFA. We
received one comment in direct response to the IRFA. The American Cable Association ("ACA") argues
that smaller cable systems play an important role in the distribution of local signals in rural America and
smaller communities and that competitive imbalances from broadcaster abuses relating to retransmission
consent threatens this role. In particular, ACA states that the "IFRA remains devoid of any meaningful
analysis of how any retransmission consent rules that may result would impact smaller cable businesses and
their systems, nor does it propose alternative relief to accommodate the unique needs of those businesses.
Instead, the Commission generally believes that entity size has no bearing on the issues raised in the
Notice." We note, however, that in the IFRA we discussed the retransmission consent election process and
the possibility that differences among MVPDs might justify different election schemes. We stated that we
had not proposed to treat small entities differently in this regard, but sought comment on the possibility.
We also sought comment on four specific alternatives that might lessen the compliance burden on small
entities: (1) the establishment of differing compliance or reporting requirements or timetables that take into
account the resources available to small entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather
than design standards: and (4) an exemption from coverage of the rule, or any part thereof, for small
entities. None of the other parties in this proceeding filed comments on how issues raised in the Notice
would impact small entities. Below, in the section of the FRFA titled, "Steps Taken to Minimize
Significant Impact on Small Entities, and Significant Alternatives Considered," we discuss further ACA's
comment concerning the possible impact on small entities.
4. Description and Estimate of the Number of Small Entities To Which the Rules Will Apply.
The RFA directs the Commission to provide a description of and, where feasible, an estimate of the number
of small entities that will be affected by the proposed rules. The RFA defines the term "small entity" as
having the same meaning as the terms "small business," "small organization," and "small business concern"
under Section 3 of the Small Business Act. Under the Small Business Act, a small business concern is one
which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and
(3) satisfies any additional criteria established by the Small Business Administration ("SBA"). The rules
we adopt as a result of the Report and Order will affect television station licensees, cable operators, and
other MVPDs.
5. Television Stations. The Small Business Administration defines a television broadcasting
station that has no more than $10.5 million in annual receipts as a small business. Television broadcasting
stations consist of establishments primarily engaged in broadcasting visual programs by television to the
public, except cable and other pay television services. Included in this industry are commercial, religious,
educational, and other television stations. Also included are establishments primarily engaged in television
broadcasting and which produce taped television program materials. Separate establishments primarily
engaged in producing taped television program materials are classified under another SIC number. There
were 1,509 television stations operating in the nation in 1992. That number has remained fairly constant
as indicated by the approximately 1,579 operating full power television broadcasting stations in the nation
as of May 31, 1998.
6. Thus, the rules will affect many of the approximately 1,579 television stations;
approximately 1,200 of those stations are considered small businesses. These estimates may overstate the
number of small entities since the revenue figures on which they are based do not include or aggregate
revenues from non-television affiliated companies.
7.. .In addition to owners of operating television stations, any entity that seeks or desires to
obtain a television broadcast license may be affected by the rules contained in this item. The number
of entities that may seek to obtain a television broadcast license is unknown.
8. Small MVPDs: SBA has developed a definition of small entities for cable and other pay
television services, which includes all such companies generating $11 million or less in annual receipts.
This definition includes cable system operators, direct broadcast satellite services, multipoint distribution
systems, satellite master antenna systems and subscription television services. According to the Census
Bureau data from 1992, there were 1,758 total cable and other pay television services and 1,423 had less
than $11 million in revenue. We address below services individually to provide a more precise estimate
of small entities.
9. Cable Systems: The SBA has developed a definition of small entities for cable and other pay
television services under Standard Industrial Classification 4841 (SIC 4841), which covers subscription
television services, which includes all such companies with annual gross revenues of $11 million of less. This
definition includes cable systems operators, closed circuit television services, direct broadcast satellite
services, multipoint distribution systems, satellite master antenna systems and subscription television services.
According to the Census Bureau, there were 1,323 such cable and other pay television services generating less
than $11 million in revenue that were in operation for at least one year at the end of 1992.
10. The Commission has developed, with SBA's approval, its own definition of a small cable
system operator for the purposes of rate regulation. Under the Commission's rules, a "small cable company"
is one serving fewer than 400,000 subscribers nationwide. Based on our most recent information, we
estimate that there were 1439 cable operators that qualified as small cable companies at the end of
1995. Since then, some of those companies may have grown to serve over 400,000 subscribers, and
others may have been involved in transactions that caused them to be combined with other cable
operators. The Commission's rules also define a "small system," for the purposes of cable rate regulation, as
a cable system with 15,000 or fewer subscribers. We do not request nor do we collect information concerning
cable systems serving 15,000 or fewer subscribers and this are unable to estimate at this time the number of
small cable systems nationwide.
11. The Communications Act also contains a definition of a small cable system operator,
which is "a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1%
of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual
revenues in the aggregate exceed $250,000,000." The Commission has determined that there are
61,700,000 subscribers in the United States. Therefore, an operator serving fewer than 617,000
subscribers shall be deemed a small operator, if its annual revenues, when combined with the total
annual revenues of all of its affiliates, do not exceed $250 million in the aggregate. Based on
available data, we find that the number of cable operators serving 617,000 subscribers or less totals
approximately 1450. Although it seems certain that some of these cable system operators are
affiliated with entities whose gross annual revenues exceed $250,000,000, we are unable at this time
to estimate with greater precision the number of cable system operators that would qualify as small
cable operators under the definition in the Communications Act. It should be further noted that recent
industry estimates project that there will be a total 64,000,000 subscribers and we have based our fee revenue
estimates on that figure.
12. Open Video System ("OVS"): The Commission has certified eleven OVS operators. Of
these eleven, only two are providing service. Affiliates of Residential Communications Network, Inc.
("RCN") received approval to operate OVS systems in New York City, Boston, Washington, D.C. and other
areas. RCN has sufficient revenues to assure us that they do not qualify as small business entities. Little
financial information is available for the other entities authorized to provide OVS that are not yet
operational. Given that other entities have been authorized to provide OVS service but have not yet begun
to generate revenues, we conclude that at least some of the OVS operators qualify as small entities.
13. Multichannel Multipoint Distribution Service ("MMDS"): The Commission refined the
definition of "small entity" for the auction of MMDS as an entity that together with its affiliates has average
gross annual revenues that are not more than $40 million for the proceeding three calendar years. This
definition of a small entity in the context of the Commission's Report and Order concerning MMDS
auctions that has been approved by the SBA.
14. The Commission completed its MMDS auction in March, 1996 for authorizations in 493
basic trading areas ("BTAs"). Of 67 winning bidders, 61 qualified as small entities. Five bidders indicated
that they were minority-owned and four winners indicated that they were women-owned businesses.
MMDS is an especially competitive service, with approximately 1,573 previously authorized and proposed
MMDS facilities. Information available to us indicates that no MDS facility generates revenue in excess of
$11 million annually. We conclude that there are approximately 1,634 small MMDS providers as defined
by the SBA and the Commission's auction rules.
15. DBS: There are four licenses of DBS services under Part 100 of the Commission's Rules.
Three of those licensees are currently operational. Two of the licensees which are operational have annual
revenues which may be in excess of the threshold for a small business. The Commission, however, does not
collect annual revenue data for DBS and, therefore, is unable to ascertain the number of small DBS
licensees that could be impacted by these proposed rules. DBS service requires a great investment of
capital for operation, and we acknowledge that there are entrants in this field that may not yet have
generated $11 million in annual receipts, and therefore may be categorized as a small business, if
independently owned and operated.
16. HSD: The market for HSD service is difficult to quantify. Indeed, the service itself bears
little resemblance to other MVPDs. HSD owners have access to more than 265 channels of programming
placed on C-band satellites by programmers for receipt and distribution by MVPDs, of which 115 channels
are scrambled and approximately 150 are unscrambled. HSD owners can watch unscrambled channels
without paying a subscription fee. To receive scrambled channels, however, an HSD owner must purchase
an integrated receiver-decoder from an equipment dealer and pay a subscription fee to an HSD
programming package. Thus, HSD users include: (1) viewers who subscribe to a packaged programming
service, which affords them access to most of the same programming provided to subscribers of other
MVPDs; (2) viewers who receive only non-subscription programming; and (3) viewers who receive satellite
programming services illegally without subscribing. Because scrambled packages of programming are most
specifically intended for retail consumers, these are the services most relevant to this discussion.
17. According to the most recently available information, there are approximately 30 program
packages nationwide offering packages of scrambled programming to retail consumers. These program
packages provide subscriptions to approximately 2,314,900 subscribers nationwide. This is an average of
about 77,163 subscribers per program package. This is substantially smaller than the 400,000 subscribers
used in the commission's definition of a small MSO. Furthermore, because this is an average, it is likely that
some program packages may be substantially smaller.
18. SMATVs: Industry sources estimate that approximately 5,200 SMATV operators were
providing service as of December, 1995. Other estimates indicate that SMATV operators serve
approximately 1.05 million residential subscribers as of September, 1996. The ten largest SMATV
operators together pass 815,740 units. If we assume that these SMATV operators serve 50% of the units
passed, the ten largest SMATV operators serve approximately 40% of the total number of SMATV
subscribers. Because these operators are not rate regulated, they are not required to file financial data with
the Commission. Furthermore, we are not aware of any privately published financial information regarding
these operators. Based on the estimated number of operators and the estimated number of units served by
the largest ten SMATVs, we tentatively conclude that a substantial number of SMATV operators qualify as
small entities.
19. Description of Projected Reporting, Recordkeeping and other Compliance Requirements.
This Report and Order establishes a series of rules implementing good faith guidelines in connection with
retransmission consent agreements between television broadcast stations and all MVPDs. The good faith
negotiation requirement applies only to broadcasters, however the conduct of MVPDs that seek
retransmission consent is not irrelevant to the Commission in determining whether a broadcaster has
complied with its obligation to negotiate retransmission consent in good faith. During the process of
developing and negotiating retransmission consent, parties will be guided by the principles and provisions
established in this Report and Order. While the substance of the agreements should be left to the market, the
Commission is responsible for enforcing the process of good faith negotiation. We have established
standards, practices, and conduct, derived principally from NLRB precedent, that will be applicable to all
retransmission consent negotiations. First among the negotiation standards is that a broadcaster may not
refuse to negotiate with an MVPD regarding retransmission consent. Additional standards outline
broadcaster conduct required to meet the good faith standard in retransmission consent negotiation.
20. Pursuant to the directive by Congress, this proceeding also describes and explains the limits
relating to exclusivity agreements and implements rules in that regard. Specifically, the SHVIA prohibits
all exclusive retransmission agreements for television broadcast stations and MVPDs prior to January 1,
2006. We interpret the phrase "engaging in" to proscribe not only entering into exclusive agreements, but
also negotiation and execution of agreements granting exclusive retransmission consent. The Commission
also establishes complaint procedures and sets forth the requirements of complainants to address situations
where there is evidence of exclusive retransmission consent agreements.
21. In the event that the good faith negotiation obligation provisions are not adhered to,
enforcement procedures also have been established to report concerns and complaints and address disputes
between parties. An MVPD believing itself aggrieved, may file a complaint with the Commission. Based
upon pleadings filed, a determination will be made by the Commission on the issue of good faith.
22. Steps Taken to Minimize Significant Impact on Small Entities, and Significant Alternatives
Considered. In this Report and Order, of major importance is the principle of sustaining an environment
where there will be fairness, fair dealings, and true competition between parties in the process of developing
agreements on retransmission consent. This proceeding develops a definite framework for retransmission
consent agreements so that television broadcast stations and MVPDs are aware of their rights and
obligations under Section 325(b)(3)(C).
23. As noted, American Cable Association ("ACA") asserts that because retransmission consent
agreements have been largely unrestricted, broadcasters have tried to extract unreasonable concessions in
return for retransmission consent from smaller cable systems and will continue to do so. It states that the
Commission must establish sufficient safeguards to protect individual smaller cable businesses. ACA
suggests that the Commission should articulate its expectations regarding good faith negotiations and
extend those obligations to all retransmission consent negotiations, including cable. We do not believe it
necessary to develop specific rules for particular subsets of the MVPD market. The good faith negotiation
requirement applies to a broadcaster's negotiations with all MVPDs, including small cable operators. The
Report and Order adopts rules to implement this obligation with regard to all broadcaster negotiations with
all MVPDs. For example, we set forth good faith negotiations standards, which proscribe the actions or
practices that would violate a broadcast television station's duty to negotiate retransmission consent
agreements in good faith. Further, procedures to address exclusivity complaints are also established.
Small businesses are subject to these provisions and will benefit from the protection provided. We believe
this sufficiently ameliorates ACA's concerns.
24. Report to Congress: The Commission will send a copy of this Report and Order, including
this FRFA, in a report to Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of
1996, 5 U.S.C. 801(a)(1)(A). A copy of this Report and Order and FRFA (or summary thereof) will also
be published in the Federal Register, pursuant to 5 U.S.C. 604(b), and will be sent to the Chief Counsel
for Advocacy of the Small Business Administration.